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Brian Rice had a powerful vision for his hometown of Birmingham, Alabama. He purchased eight properties intending to transform them into thriving, interconnected small businesses and rejuvenated residential properties. There was just one problem.
One bank after another disagreed with Price’s assessment of the properties’ profitable potential! What was the reason for the disconnect?
During the loan application process, banks use “comparable parcels” to evaluate market risk and property valuation. And that’s where Rice said his frustration continued to mount.
"They compared my eight historic properties to farmland 14 or so miles away, and they compared my buildings to an abandoned car wash. Nothing about my properties resembles those," he explained to the BBC. Because of this, his properties’ failed to meet the $50,000 minimum valuation federal regulatory required to access a credit line!
Institutions even went so far as to ask about the “demographics” of the surrounding neighborhood – a coded way to conduct illegal discrimination known as redlining.
That leaves rejected, yet still ambitious, Black hometown investors with limited choices.
While Brookings Institute researchers suggest it’s time to revise how lending risk is determined for disadvantaged Black investors and communities, law professor Mehrsa Baradaran advocates for financial reparations to make the economic playing field more equitable.
In the meantime, investors like Rice are left exploring unconventional avenues of accessing development dollars.